Inefficiency of competitive equilibrium with hidden action and financial markets
In this paper, we study a pure exchange economy with idiosyncratic uncertainty, hidden action and multiple consumption goods. We consider two different market structures : contingent markets on the one hand, and financial and spot markets on the other hand. We propose a competitive equilibrium concept for each market structure. We show that the equilibrium with contingent markets is efficient in an appropriate sense, while the equilibrium with financial and spot markets is inefficient, provided that assumptions on preferences more general than those usually considered in the literature hold.
|Date of creation:||01 Sep 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +32 10473945
Web page: http://www.uclouvain.be/econ
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Arnott, Richard & Stiglitz, Joseph E., 1986.
"Moral hazard and optimal commodity taxation,"
Journal of Public Economics,
Elsevier, vol. 29(1), pages 1-24, February.
- Richard J. Arnott & Joseph E. Stiglitz, 1983. "Moral Hazard and Optimal Commodity Taxation," NBER Working Papers 1154, National Bureau of Economic Research, Inc.
- Richard Arnott & Joseph Stiglitz, 1982. "Moral Hazard and Optimal Commodity Taxation," Working Papers 500, Queen's University, Department of Economics.
- Marcos B. Lisboa, 2001. "Moral hazard and general equilibrium in large economies," Economic Theory, Springer, vol. 18(3), pages 555-575.
- Edward C Prescott & Robert M Townsend, 2010.
"Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard,"
Levine's Working Paper Archive
2069, David K. Levine.
- Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
- Helpman, Elhanan & Laffont, Jean-Jacques, 1975. "On moral hazard in general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 10(1), pages 8-23, February.
- Malinvaud, E., 1972. "The allocation of individual risks in large markets," Journal of Economic Theory, Elsevier, vol. 4(2), pages 312-328, April.
- Arnott, Richard & Greenwald, Bruce & Stiglitz, Joseph E., 1994.
"Information and economic efficiency,"
Information Economics and Policy,
Elsevier, vol. 6(1), pages 77-82, March.
- Kocherlakota, Narayana R., 1998. "The effects of moral hazard on asset prices when financial markets are complete," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 39-56, February.
- Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
When requesting a correction, please mention this item's handle: RePEc:ctl:louvec:2006049. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne DAVISTER-LOGIST)
If references are entirely missing, you can add them using this form.